REFERENCE: Ref.03_06
Kaye Company acquired 100% of Fiore Company on January 1,2009.Kaye paid $1,000 excess consideration over book value which is being amortized at $20 per year.Fiore reported net income of $400 in 2009 and paid dividends of $100.
-Assume the initial value method is used.In the years subsequent to acquisition,what additional worksheet entry must be made for consolidation purposes that is not required for the equity method?

Question

Quizplus · Accepted Answer

Under the initial value method, an additional worksheet entry must be made to eliminate the effect of the excess consideration paid by the parent company. This is achieved through the amortization of the excess consideration over its useful life, and the reduction of the Investment in Fiore account by the amount of amortization. This entry is not required under the equity method, as the parent's Investment account reflects the initial cost paid to acquire the subsidiary. Therefore, the correct answer is Entry C, which represents the amortization of excess consideration.

REFERENCE: Ref.03_06 Kaye Company Acquired 100% of Fiore Company on January 1,2009.Kaye